Office of the Secretary of State financial-compliance audit for the two fiscal years ended ... [electronic resource]

2006·0.45 MB·English

by  Montana.Legislature.Legislative Audit Division

Legislative Audit Division

State of Montana

Report to the Legislature
Financial-Compliance Audit
November 2006
For the Two Fiscal Years Ended June 30, 2006

Office of the Secretary of State

This report contains six recommendations related to:

(cid:23) Recording revenue and expenditures in accordance with state
accounting policy.
(cid:23) Compliance with federal grant requirements.
(cid:23) Ensuring fees charged for business services are commensurate
with the cost of providing those services.

Direct comments/inquiries to:
Legislative Audit Division
Room 160, State Capitol
PO Box 201705
06-19 Helena MT 59620-1705

Help eliminate fraud, waste, and abuse in state government. Call the Fraud Hotline at
1-800-222-4446 statewide or 444-4446 in Helena.
FINANCIAL-COMPLIANCE AUDITS

Financial-compliance audits are conducted by the Legislative Audit Division to determine if an
agency’s financial operations are properly conducted, the financial reports are presented fairly,
and the agency has complied with applicable laws and regulations. In performing the audit work,
the audit staff uses standards set forth by the American Institute of Certified Public Accountants
and the United States Government Accountability Office. Financial-compliance audit staff
members hold degrees with an emphasis in accounting. Most staff members hold Certified Public
Accountant (CPA) certificates.

Government Auditing Standards, the Single Audit Act Amendments of 1996 and OMB Circular
A-133 require the auditor to issue certain financial, internal control, and compliance reports. This
individual agency audit report is not intended to comply with these reporting requirements and is
therefore not intended for distribution to federal grantor agencies. The Legislative Audit Division
issues a statewide biennial Single Audit Report which complies with the above reporting
requirements. The Single Audit Report for the two fiscal years ended June 30, 2007, will be
issued by March 31, 2008. The Single Audit Report for the two fiscal years ended June 30, 2005,
was issued on March 6, 2006. Copies of the Single Audit Report can be obtained by contacting:

Single Audit Coordinator Legislative Audit Division
Office of Budget and Program Planning Room 160, State Capitol
State Capitol PO Box 201705
Helena MT 59620 Helena MT 59620-1705
Phone [phone]

MEMBERS OF THE LEGISLATIVE AUDIT COMMITTEE

Senator Joe Balyeat, Vice Chair Representative Dee Brown
Senator John Brueggeman Representative Hal Jacobson
Senator Jim Elliott Representative Christine Kaufmann
Senator Dan Harrington Representative Scott Mendenhall
Senator Lynda Moss Representative John Musgrove, Chair
Senator Corey Stapleton Representative Janna Taylor
LEGISLATIVE AUDIT DIVISION

Scott A. Seacat, Legislative Auditor Deputy Legislative Auditors:
Tori Hunthausen, James Gillett
Chief Deputy Legislative Auditor Jim Pellegrini

November 2006

The Legislative Audit Committee
of the Montana State Legislature:

This is our financial-compliance audit report on the Office of the Secretary of State for the two
fiscal years ended June 30, 2006. Included in this report are recommendations to record revenues
and expenditures in accordance with state accounting policy, comply with federal grant
requirements, and ensure fees charged for business services are commensurate with the cost of
providing those services. The office’s written response to the audit recommendations is included
in the back of the audit report, beginning on page B-3.

We thank the Secretary of State and his staff for their assistance and cooperation.

Respectfully submitted,

/s/ Scott A. Seacat

Scott A. Seacat
Legislative Auditor
Room 160 · State Capitol Building · PO Box 201705 · Helena, MT· 59620-1705
Phone [phone] · FAX [phone] · E-Mail [email protected]
Legislative Audit Division

Financial-Compliance Audit
For the Two Fiscal Years Ended June 30, 2006

Office of the Secretary of State

Members of the audit staff involved in this audit were Jeane Carstensen-Garrett,
John Fine, Jim Manning, Sonia Powell, and Vickie Rauser.
Table of Contents

Elected and Administrative Officials........................................................ii
Report Summary....................................................................................S-1

Introduction.................................................................................................................................................1
Scope.........................................................................................................1
Background...............................................................................................1
Prior Audit Recommendations..................................................................2

Findings and Recommendations................................................................................................................3
Accounting Errors.....................................................................................3
Montana Interactive Fees.....................................................................3
Grants from Federal Sources Misclassification...................................4
Summary..............................................................................................5
Federal Compliance..................................................................................6
Unsupported Payments........................................................................6
Financial Status Reporting...................................................................7
Questioned Costs for HAVA Advertising...........................................7
Summary..............................................................................................8
State Compliance......................................................................................8
Enterprise Fund Fees...........................................................................8
Compliance with Duty to Report Requirements..................................9

Independent Auditor’s Report & Office Financial Schedules............................................................A-1
Independent Auditor’s Report................................................................A-3

Schedule of Changes in Fund Balances
For the Fiscal Year Ended June 30, 2006...............................................A-5

Schedule of Changes in Fund Balances & Property Held
in Trust for the Fiscal Year Ended June 30, 2005..................................A-6

Schedule of Total Revenues & Transfers-In
For the Fiscal Year Ended June 30, 2006...............................................A-7

Schedule of Total Revenues & Transfers-In
For the Fiscal Year Ended June 30, 2005...............................................A-8

Schedule of Total Expenditures & Transfers-Out
For the Fiscal Year Ended June 30, 2006...............................................A-9

Schedule of Total Expenditures & Transfers-Out
For the Fiscal Year Ended June 30, 2005.............................................A-10

Notes to the Financial Schedules..........................................................A-11

Office Response.......................................................................................................................................B-1
Office of the Secretary of State..............................................................B-3

Page i
Elected and Administrative Officials

Office of the Secretary of State Brad Johnson Secretary of State

Mark Simonich Chief Deputy

Janice Doggett Chief Legal Counsel

Jean Branscum Deputy for Administrative Rules and
Management Services

Mike O’Brien Deputy for Business Services

Elaine Graveley Deputy for Elections

Patti Borsberry Deputy for Records and Information
Management

For additional information concerning the Office of the Secretary
of State, contact Brad Johnson, Secretary of State, at:

PO Box 202801
Helena MT 59620-2801
[phone]
e-mail: [email protected]

Page ii
Report Summary

Office of the Secretary of This financial-compliance audit report documents the results of our
State
audit of the Office of the Secretary of State (office) for the two fiscal
years ended June 30, 2006. We issued a qualified opinion on the
financial schedules of the office for fiscal years 2004-05 and
2005-06. This means the reader should use caution in relying on the
financial information presented and the supporting detailed
information on the state’s accounting records.

This audit report contains six recommendations. The
recommendations relate to recording revenues and expenditures in
accordance with state accounting policy, complying with federal
grant requirements, and ensuring fees charged for business services
are commensurate with the cost of providing those services.

The prior audit report contained two recommendations. The office
implemented one recommendation and partially implemented one
recommendation.

The listing below serves as a means of summarizing the
recommendations contained in the report, the office’s response thereto,
and a reference to the supporting comments.

Recommendation #1 We recommend the office record revenues and expenses
associated with electronic business transactions in accordance
with state accounting policy.............................................................. 4

Office Response: Concur. See page B-3.

Recommendation #2 We recommend the office properly classify federal expenditures
in accordance with state accounting policy....................................... 5

Office Response: Concur. See page B-3.

Recommendation #3 We recommend the office provide the appropriate level of
accounting expertise to its staff to ensure office transactions are
properly recorded on the state’s accounting system.......................... 6

Office Response: Concur. See page B-4.
Page S-1
Report Summary
Recommendation #4 We recommend the office provide training and develop
procedures to properly administer its federal programs.................... 8

Office Response: Concur. See page B-4.

Recommendation #5 We recommend the office comply with state law by ensuring
that fees charged for its business services reflect the cost of
providing those services.................................................................... 9

Office Response: Concur. See page B-4.

Recommendation #6 We recommend the office comply with state law by providing
the legislature information reporting state and UCC rule
discrepancies................................................................................... 10

Office Response: Concur. See page B-5.

Page S-2
Introduction

Scope We performed a financial-compliance audit of the Office of the
Secretary of State (office) for the two fiscal years ended
June 30, 2006. The audit objectives were to:

1. Determine office compliance with selected laws and
regulations.
2. Make recommendations for improvements in the
management and internal controls of the office.
3. Determine the implementation status of prior audit
recommendations.
4. Determine if the financial schedules present fairly the
results of operations of the office for the two fiscal years
ended June 30, 2006.

This report contains six recommendations to the office. Areas of
concern not having a significant effect on the successful
operations of the office are not included in this report but have
been discussed with management. In accordance with
section 5-13-307, MCA, we analyzed and disclosed the cost, if
significant, of implementing the recommendations in this report.

We audited fees charged by the office to determine whether fees
were commensurate with the overall costs of the office and
reasonably reflected the prevailing rates charged in public and
private sectors for similar services, as required by section
2-15-405(2)(a), MCA. We noted the office’s fees were not
commensurate with costs, as described on page 8 of this report.

Background Article VI, section 1, of the Montana Constitution states the
executive branch of state government includes a Secretary of State.
Title 2, chapter 15, part 4, of the Montana Code Annotated sets forth
the Secretary of State’s duties. The office has 54.25 FTE in four
divisions and the executive office. The office files, stores, maintains,
and preserves permanent records of the state and certain public
interest records of private citizens. The office publishes the Montana
Administrative Register (MAR) and the Administrative Rules of
Montana (ARM). The office is also responsible for the
commissioning of Notary Publics in Montana.
Page 1
Introduction
The Secretary of State serves as chief election officer for the state,
maintaining uniformity in the application of the election laws and
retaining election records through the Elections Bureau. In addition,
the Secretary of State serves as a member of the Board of Land
Commissioners and the Board of Examiners.

Prior Audit We performed the prior audit of the office for the two fiscal years
Recommendations ended June 30, 2004, which contained two recommendations to the
office. The office implemented one recommendation and partially
implemented one recommendation. The partially implemented
recommendation, which related to providing adequate supervision
and training for the office’s accounting function to ensure
compliance with state law and accounting policy, is discussed again
on page 5 of this report.

Page 2